Famed management consultant Peter Drucker is credited with the quip, “Culture eats strategy for breakfast.” You hear a lot about the impact and import of culture these days, but what exactly is it — and how do executives harness it as an asset for disruptive innovation?
Corporate innovation and venturing teams spend little time assessing culture’s role in aiding collaboration and investment programs with startups. Some corporations ignore culture’s role entirely when they are setting up collaborations and making acquisitions. As a result, projects are gobbled up by corporate antibodies and die a horrible death. But other corporations recognize culture’s role in killing projects, and carve out small teams who work independently from the rest of the company. In this approach, innovation teams define new ways of getting things done that are effective for startup collaborations while avoiding antibodies long enough for the new project to withstand them when they transfer into core business units. This “skunkworks” approach enables projects to move at the speed of startups initially, but they eventually hit a wall when it’s time to integrate into core operations. And integrating into core operations is an essential stage of startup collaboration, because it’s where corporations contribute the most value: they can leverage infrastructure and scale, and provide access to global markets and vast resources. The skunkworks approach only delays the inevitable outcome. Instead, culture matching is central to overcoming these roadblocks.
What is Culture Matching?
At the highest level, culture is simply a shared vision that guides behavior. Organizational culture grows from a combination of company values, norms, systems, symbols, language, environment, location, assumptions, and habits.
Culture can be divided into two categories: principles (i.e. core values) and practices (e.g. guidelines and procedures). For example, a company might outline culture principles that include innovation, customer obsession, frugality, and bias for action. These values don’t specify the practices to deliver them; that is, they don’t specify a “right” way to develop new products, brand strategy, pricing strategy, supply chain strategy, finance policies, go-to-market strategy, etc. These policies are strategic and operational choices made in the strategy phase of business creation. They are choices which are optimized for each business. Collaborations with startups introduce a wider range of choices for each section of the business model than corporations have ever had to contemplate for their core businesses.
By dividing culture into these two categories, innovation and venture leaders are able to break an insurmountable obstacle — culture — into manageable pieces and build competencies in both categories. Executives can build competencies in screening potential startups that match core values of the corporation. We’ll show an example below. Similarly, executives can build competencies in recognizing policies that need fine-tuning — or even radical modification — to ensure the success of a collaboration.
The ‘Values’ Category
Corporations and startups enter collaborations initially with different expectations about how to create a great new business together. Both parties have a different understanding of how teams will operate, how decisions will be made, speed of execution, and many other areas. Most corporations and startups have learned how to define operating terms as part of a joint development agreement (JDA) or master development agreement (MDA), but many assumptions remain unaddressed. Culture is one area that is frequently not addressed.
Let’s start by looking at common values through the prism of culture in a sample startup-corporate collaboration:
As you see in the third column (“Corporate Culture Gap”), there is a huge chasm between the two firms’ values. Hence, this startup-corporate collaboration isn’t going anywhere. Their values are not aligned sufficiently to withstand the stresses and strains of the project. The corporation will simply ignore or starve the partnership, wasting the startup’s valuable resources.
How can corporations match cultures for a successful collaboration with startups? The first step is getting closer on the way they practice core values. This can be done in one of two approaches:
- Find startups with values that match theirs (easier than #2, but this approach reduces the pool of potential startup collaborators). The “Corporate Culture Matched” column, in these cases, is nicely matched to the startup’s culture and hence has a decent shot at success.
- Modify their culture to match that of a startup (more difficult, but not impossible). What would it take to match the corporation’s values to that of the startup?
This is a fundamental challenge for corporations who see core values as so carved in stone that they are non-negotiable or untouchable by innovation and venture Leaders. In one example at a company I worked with in the past, a startup collaboration required modifications to supply chain policies. I learned the supply chain organization had “golden rules” that were untouchable. After working our way around them, we learned about their “platinum rules” which were really non-negotiable. One barrier after another was navigated until we made the changes that made the business successful. This happened because we separated values from guidelines to ensure we upheld the supply chain group’s values, while creating flexibility that supported the collaboration. For companies that define core values at a high enough level of abstraction, there’s room to re-interpret them for each new era or each new business model to increase odds of success. Similarly, these same companies are able to adapt to startups and match cultures successfully. What else needs to happen?
The ‘Practices’ Category
Now let’s look at common practices in a sample startup-corporate collaboration:
Again, there is a huge gap in business practices between the first two columns, which means this startup-corporate collaboration is unlikely to succeed. The lack of agile business practices within the corporation will crush all hope of success with the startup collaboration. As an example, I remember like it was yesterday an initial meeting with a startup we intended to acquire. We initiated due diligence with a day-long meeting. In the first 30 minutes, the startup’s CEO explained his vision for the new business after the deal was completed. After each sentence, I responded, “We don’t do things that way,” or, “That’s now how things work in a big company.” With each exchange the frustration built, and after 30 minutes, we recognized the need for a break. During the break, I walked into the men’s room and literally washed my face to convince myself that I needed to be more open to the CEO’s ideas. When we resumed, I started by saying, “Let’s go over that list again.” And with each suggestion, I said, “I like that,” and asked for details on how they were doing things within the startup, as opposed to being closed-minded and wed to existing practices. It worked. We created a fabulous business together — but only because we tackled critical practices that enabled disruptive new business models to gain traction enough for the corporate executives to understand how the new business would succeed.
An example of matching practices between startups and corporations to increase the odds of a successful collaboration is shown in the right column above.
Testing Culture Fit
As part of an initial collaboration discussion, both parties should identify and address practices that could hinder the project’s efforts. Issues for consideration include:
- Branding: Is the corporation open to new strategies (co-branding or independence from master brand)?
- Business model: What new business models will the corporation consider (freemium, platform-as-a-service, device-as-a-service)?
- Decision-making/speed: Who owns decisions? Are timelines realistic?
- Go to Market: What new routes to market is the corporation open to? New distribution/sales models?
- Finance/supply chain: Will the corporation consider new approaches? What kind?
- Team/project management: Are dedicated resources available or fractions of people? Who manages the project?
Culture Matching Tips
In pursuing collaborative arrangements, both startups and corporations dedicate enormous resources and significant energy to perfecting strategy, but very little in the way of culture matching. The result is plenty of failed projects.
It’s important to assess aspects of culture expressed in the principles and practices of both organizations; identify where differences will likely impede success; and be transparent up front about where there is (and isn’t) flexibility.
One tip is to test the culture fit at the earliest possible opportunity. I call this phase determining Minimum Viable Synergies™. The idea of MVS is that both parties put all their cards on the table to see if the collaboration can deliver on its promise. For example, if the corporation is identified as the party that will access customers for the new jointly-developed product, you might have one of the corporation’s sales or marketing employees schedule a meeting with the target customer and “sell” them the new product. In one case, a collaboration with a startup stalled out because the corporation couldn’t access the right people in their Fortune 500 accounts. The corporation had access to buyers in purchasing, but the new product that resulted from the startup collaboration was a disruptive product that required access to C-suite executives, and the corporate sales teams didn’t know them. After twelve months of technical development and a lot of resources, the collaboration disintegrated because the corporation didn’t accurately distinguish between account access (the company) and customer access (the decision-maker).
Another tip is to listen for statements inside corporations that could be warning signs of culture mis-matching:
- “We don’t do things that way here.”
- “Marketing will never let you do that.”
- “Finance will never change allocation models.”
- “Supply chain ‘golden rules’ can never be broken.”
- “We can do it ourselves, and better.”
Making the effort to match cultures — both core values and practices — is often ignored. But when it is done right, it can lay the foundation for a successful startup-corporation collaboration.